Millennials Driving Growth of Health Savings Accounts

In 2016, less than a third of eligible millennials under the age of 26 participated in an HSA, but that figure has grown to nearly 40 percent now, and those same millennials are contributing nearly 20 percent more — over $200 more on average — to family coverage accounts this year, according to the second annual State of Employee Benefits report by Benefitfocus.

Although these contributions are still well below the IRS maximum, the increase likely signifies that millennials have a better understanding of the value that a well-funded HSA can provide them.

“This year’s report documents the continued shift by employers to consumer-driven healthcare plan designs,” Benefitfocus co-founder and CEO Shawn Jenkins told Employee Benefit News. “Employers continue to offer more choice in benefits — both with HDHPs and voluntary benefits — to help employees personalize their benefits to best suit their unique health and financial needs.”

To help manage their growing financial responsibilities, many employers offer HSAs and flexible spending accounts (FSAs) that workers can pair with a health plan. These accounts allow both employers and employees to contribute pre-tax dollars to pay for qualified medical expenses throughout the year. They provide a cost-effective way for employees to tackle daunting deductibles and additional out-of-pocket medical expenses.

In order to sign up for an HSA, an employee must buy or have a qualified HDHP (High Deductible Healthcare Plan), which is a form of catastrophic health insurance coverage. Coverage under these plans only kicks in after the insured meets a specified high deductible. In 2017, HDSA-qualified plans must have a deductible of at least $1,300 for people with individual coverage and $2,600 for those with family coverage.

HSAs, which are available exclusively to HDHP subscribers, are used to reimburse employees for qualified medical expenses incurred within the deductible of the HDHP.

[HSAs are] essentially like 401(k) plans that specialize in health care, with the added benefit that withdrawals are tax-free — for qualified expenses — at any time,” the authors of the report wrote. “While there remains a long runway of opportunity for these accounts, they appear to have gained momentum.”

HSAs are a relatively recent enhancement to traditional health insurance plans that are basically a savings product designed to offer individuals a different way to pay for their health care. HSAs enable employees to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

Employees establish their account, which means the employee owns and controls the money in their HSA. The employee makes all decisions about how to spend the money without relying on a third party or a health insurer. The employee also decides what types of investments to make with the money in the HSA to make it grow. However, if a worker signs up for an HSA, employees are generally required to buy a high-deductible health plan as well.